Thierry Foucault’s Work on AI and Finance Wins a European Research Council Grant

Thierry Foucault, professor of finance at HEC Paris and GREGHEC (CNRS/HEC), and the Scientific Co-Director of Hi! Paris Center*, is one of 209 new recipients of the European Research Council (ERC) Advanced Grant. The top award allows Foucault to pursue his project research “FIDAI” (Financial Information, Data Abundance, and Investment). This makes HEC Paris faculty recipient of three ERC grants in less than one year.

On April 22, the European Research Council announced the winners of its 2020 Advanced Grants competition. The funding, worth a total of €507 million, will go to 209 leading researchers across Europe. Their work is set to provide new insights into key scientific fields. Learn more on the ERC website here.

In May 2020 and January 2021, two other professors of finance at HEC Paris also won a European Research Council grant. In early 2020, Bruno Biais, was rewarded an Advanced grant, while in early 2021, Johan Hombert won a Consolidator Grant from the ERC.

Through the research funded by the European Research Council, Thierry Foucault intends to understand the consequences of data abundance and artificial intelligence on the quality and nature of information produced in financial markets and its effect on corporate investment.

Thierry Foucault explains here his project in more detail: 

Progress in information technologies, the development of personal electronic devices and the internet generate a massive amount of data both in terms of variety and volume ("Data Abundance"). In parallel, progress in computing power has reduced the cost of processing data and enabled the deployment of more powerful forecasting techniques (“Artificial Intelligence”). This evolution has far-reaching economic implications in many industries, including the finance industry.

The goal of my ERC project is to analyze the implications of this evolution in terms of both the quality and nature of information produced in financial markets, and the nature of investment projects chosen by firms given this information.

These are fundamental questions. For instance, Joseph Stiglitz wrote that: “Financial markets essentially involve the allocation of resources. They can be thought of as the "brain" of the entire economic system, the central locus of decision making: if they fail, not only will the sector's profits be lower than they would otherwise have been, but the performance of the entire economic system may be impaired.”

If data abundance and artificial intelligence strengthen the quality of the information flowing to financial markets, the economic system will receive better information from its “brain”.

Using this analogy, if data abundance and artificial intelligence strengthen the quality of the information flowing to financial markets, the economic system will receive better information from its “brain.” As a result, capital allocation will be more efficient and economic growth will be enhanced. In contrast, if Data Abundance or AI degrades the quality of financial information, there is cause for concern and reason for policy intervention.  

Despite its importance, little is known on this issue. New research is needed to understand the consequences of data abundance and artificial intelligence on the quality and nature of information produced in financial markets and its effect on corporate investment. The goal of my ERC grant is to make progress on this front, using a combination of theoretical and empirical methods. The potential gains in new knowledge are high and will help to better understand the effects of progress in information technologies.

*Hi! Paris Center is an interdisciplinary center dedicated to the research on AI and data science.

Learn more on research by Thierry Foucault on the financial markets summarized by Knowledge@HEC.